It was a tough month for investors in the electric vehicle (EV) sector, with negative headlines on multiple fronts. For long-term investors, though, that makes it a good time to analyze whether the drops are opportunities to add shares or see if the new reality is thesis-changing.
EV charging station network company ChargePoint (CHPT 6.57%) lost a whopping 48.9% last month. The stocks of electric heavy truck maker Nikola (NKLA -1.72%) and Chinese EV maker Nio (NIO 5.65%) dropped by 31.2% and 19.2%, respectively, according to data provided by S&P Global Market Intelligence.
For one of these names, a bit of news in the sector last month could indeed mean it’s time to sell and move on.
Profitability may never come
All the companies above are working to grow their EV businesses with the goal of becoming profitable within a few years. For that to happen, these companies must execute their business plans and will need more macro trends to work in their favor. But ChargePoint may have just run into a competitor it won’t be able to overcome.
Global EV leader Tesla already has its own network of fast-charging Superchargers with its North American Charging Standard (NACS) plug. Other EV makers are adopting that charging connector, and even ChargePoint has begun producing Tesla-compatible NACS chargers. But Tesla has also now begun using its leadership position as a competitive advantage by selling its charging hardware directly to third parties.
The first deal announced by Tesla was a $100 million sale to energy giant BP. BP will install Tesla’s fast-charging units at company brands, including truck stop operator TravelCenters of America. If Tesla has plans to continue making deals for its charging hardware, ChargePoint’s future prospects could be limited. That explains why investors nearly cut the company’s valuation in half last month.
Other headwinds to overcome
ChargePoint wasn’t the only struggling EV sector company that faced headwinds last month. Nikola recently recalled about 200 battery-electric semi trucks for a battery safety problem. The company raised additional capital, partially to help pay the unanticipated costs to rectify the problem.
In its third-quarter update, Nikola revealed the recall will cost about $62 million. But Nikola also announced some good news in the update it provided on Nov. 2. It increased the amount of cash on its balance sheet in the quarterly period and has orders for nearly 300 of its hydrogen-powered electric trucks. That helped the stock recover some of its October losses.
Nio shares also recovered in the first week of November. Its October slump really didn’t come from any company-specific news. But these early-stage companies need supportive macroeconomic backdrops to succeed as well.
These stocks are highly risky investments. ChargePoint is not one that I would add to or buy right now. Its future could be at risk. Nio and Nikola also need many things to go right for long-term success. Only speculative money should be used if one believes the demand for electric trucks and cars will be so great that there’s room for many EV makers to win.
Howard Smith has positions in ChargePoint, Nikola, Nio, and Tesla. The Motley Fool has positions in and recommends BP, Nio, and Tesla. The Motley Fool has a disclosure policy.
